Temporary employment penetration (temp as a percentage of the total workforce) is at its highest level since August 2007 at 1.88%! The last peak was in November of 2005 at 1.96%.  In fact, some analysts and staffing industry insiders expect that rate to eventually surpass record levels above 2% as more employers choose flexible or project-based staffing in a choppy economic environment.

This is further evidence that staffing industry is hovering near the mid-point of a typical recovery cycle and perhaps without any major domestic or global hick-ups, we’ll have several good years of continued growth ahead of us.

As we near or hover around the mid-point of the cycle, many of our clients and friends in the industry are beginning to dust-off and update their strategic plans. We can help by providing current trends related to your business, thoughts on capital raises and potential transaction analysis.  Have you updated yours?

BTW – If any of you are attending the CIETT Conference (International Confederation of Private Employment Agencies ) this month in London, please say hello to our teammate Alan Bugler, who will be attending.

PEGs have also been very active as buyers/investors. We have seen valuations move up as the buyer demand has accelerated in 2011-2012. PEG demand for high growth firms and for those firms with recurring revenue dynamics has been particularly high. Last week we closed a capital raise for a very high growth consultancy focused on “Big Data.” Two very well-known financial institutions committed $50 million to this investment round.

Finally, we are seeing more interest from PEGs in making minority equity investments. Obviously expanding their investment parameters allows PEGs to deploy more capital. I also think that many PEGs now realize that there is a vibrant market for owners who want to maintain control yet still raise money. This structure makes the most sense for very high growth companies who want to invest in the future and also want the prestige factor that comes being associated with brand name investors.

On March 20, 2012, ASGN announced that it had entered into an agreement to acquire Apex for $600 million in cash and stock (9.2x TTM EBITDA).

The acquisition complements ASGN’s existing IT staffing platform, Oxford Global, which it acquired in 2007.  Oxford focuses on high end IT workers that is places on urgent assignments at average bill rates of $116 per hour.  Apex focuses on more traditional IT staffing skill sets with an average bill rate of $60 per hour.

On a pro forma basis ASGN will have generated $1.3 billion in revenue in 2011 with 30% gross profit margins.

The acquisition has been well received by the investment community with plans to close the transaction by July 12, 2012.

Healthcare reform was a hot topic as well as the continuing adoption of VWS and the impact it is having on margins. Also of particular interest were IT trends currently impacting the staffing community; specifically, this included advancements in ATS systems and social media’s influence on recruiting strategy.

Direct hires – perm placements are accelerating with most companies experiencing a significant growth in year of year placements, indicating that the current cycle might be beginning to mature.
There was a great deal of interest in what was happening in the M&A arena; and I can assure you there is and will be a lot of activity in 2012 driven partly by the threat of legislation effecting capital gains and the interest of Private Equity, Foreign and strategic buyers looking to expand.

We continue to see significant interest from both financial and strategic buyers looking to hedge their bets in the Cloud/Saas consulting sector.

This activity validates the interest levels we saw in 2011 for Saas and Cloud based consulting firms. Large consulting firms have been proactively seeking to acquire firms that have Saas or Cloud computing skills to bolster their current offerings or add new practice areas to stay ahead of the demand curve for such skills. As with the multiples being paid for firms such as Successfactors and Taleo, we are seeing buyers willing to pay a hefty premium for Saas and Cloud computing skills.

I personally met with over 20 PEGs that are interested in the human capital management sector and are very motivated to look at growing companies with quality management teams. Private equity firms typically invest in companies with more than $5 million in EBITDA but there is a smaller group that focus on companies with $2 -$5 million in EBITDA. Both of these groups are actively searching for investment opportunities.

The cloud is actually a little bit of all that. The essence of the cloud is man’s basic want and need to enhance functionality while lowering TCO on somebody else’s real estate. Gosh, we’re greedy, aren’t we!

But think about it for a second—a company decides it’s “going to the cloud” and that it’s done with all its servers, boxes, cables, ERP, data storage, switches, routers, blah, blah, blah—that is no small task. In reality, it is an outrageously complex undertaking. And like I’ve said in past blog posts, when there is ‘change’ and it is ‘complex’, services companies with a consulting bent will tend to flourish…..especially if they can manage a piece of that away from the client. So let’s focus on just ERP and data from my litany up above.

In the ERP space, Workday will be going public later this year as the rock star contender going up against SAP and Oracle. And in Big Data, Splunk just filed. When companies like this enter the public markets with great success, it is due to their growth trajectory. And when they grow, the ecosystem for their services partners grows too. We will be coming to market with a few companies over the next months along this theme. There are emerging markets in cloud-based ERP (Workday) and Big Data (Splunk) with tremendous underpinnings—and while the software companies are the centers of those universes, or rock stars, the services partners are growing at a similar rate with attractive value propositions. And if you ask me, given where software multiples are these days, the smart money (with strong returns) is in services……but maybe I’m biased.

While the conventional credit model points out that they lack significant asset levels (except for A/R) on their balance sheets, there is a market out there for cash flow-based lending beyond the A/R based revolvers. With the exception of one transaction this year, every deal we have closed has had some sort of debt in the capitalization. The range has been between 2-4x LTM EBITDA and the pricing has been LIBOR + 500 bps all the way up to twice that (LIBOR floor at 125-150bps).

An interesting dynamic, or observation, is how the traditional senior/sub structure and respective lenders are now competing with “unitranche” players. Unitranche is essentially a blended debt structure which combines the elements of both by providing a note with a slightly higher rate (akin to mezz returns) with senior preferences and rights (akin to senior debt), while being a single voice and throat to choke:)